Treasury-Federal Reserve Accord of 1951
In response to the U.S. entry into World War II, the Federal Reserve committed itself to maintaining an interest rate of ⅜ percent on Treasury bills. After the war ended, the Federal Reserve wanted to move off of this interest rate peg.
This timeline provides insight into the events after World War II that led to the 1951 Accord between the U.S. Treasury and the Federal Reserve System. These events outline the Fed's goal to be independent from the Treasury as well as the country's struggle with rising inflation. For more resources and further documentation, explore the FRASER subject Treasury and Federal Reserve Accord, 1951 and articles from the Federal Reserve Bank of Richmond and Allan Sproul at the Federal Reserve Bank of New York.
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April 29, 1942 | Federal Reserve Commits to Rate Peg in Support of the War Effort
Government securities rates are fixed at ⅜ percent on Treasury bills, with a 2½ percent ceiling for long-term bonds.
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December 31, 1946 | President Truman Declares End of Hostilities
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March 7, 1947 | Treasury Issues Press Release Stating That Low Interest Rates Will Continue
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June 25, 1947 | Fed Chairman Marriner Eccles Makes a Statement Before the Senate Banking and Currency Committee on Regulation of Consumer Instalment Credit
The amount of credit extended in the United States is increasing rapidly as rates remain low and incomes are rising. The Board of Governors requests legislation authorizing the Board to regulate consumer instalment credit, replacing Truman's Executive Order. The statement by Marriner Eccles on behalf of the Board of Governors recommends the Board's control of credit regulation until July 31, 1948, followed by an end to consumer credit controls.
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July 1, 1947 | Fed Raises Peg on Treasury Bill Rate
The Fed proposes changes to allow the market to decide the rate on Treasury bills purchased after July 4.
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January 28, 1948 | Board of Governors Responds to Speculation Over Changing of the Fed Chairman
Some are concerned that the Treasury played a hand in ending Marriner Eccles's time as Fed Chairman.
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January 31, 1948 | Marriner Eccles's Term as Chairman of the Board of Governors Ends
President Truman declines to reappoint Marriner Eccles as Chairman of the Board of Governors. Thomas McCabe is selected as the new Fed Chairman, taking office on April 15, 1948.
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June 28, 1949 | Federal Open Market Committee (FOMC) Announces Policy to Primarily Consider Business and Credit Situation When Buying Government Securities
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February 2, 1950 | Council of Economic Advisors Delivers Memo to President Harry Truman Regarding Treasury-Federal Reserve Policy Actions
The President's Council of Economic Advisors stated its opposition to the will of Congress's Joint Committee on the Economic Report that "Treasury actions relative to... transactions in the public debt shall be made consistent with the policies of the Federal Reserve."
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June 13, 1950 | FOMC Vice Chairman Allan Sproul Suggests a Rate Increase of ⅛ Percent at FOMC Meeting
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June 27, 1950 | President Truman Orders Armed Forces To Support the Korean Government in Response to Attack by North Korea
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July 1, 1950 | President Truman Calls for Reliance on Fiscal and Credit Measures
As a measure to curb inflation, President Truman recommends Congress raise revenues and restore credit controls.
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July 17, 1950 | Secretary of the Treasury John Snyder Writes to Fed Chairman Thomas McCabe
To ensure financing for the foreseen defense spending, Secretary Snyder believes that any and all financial plans need to be a sure success. He calls for a "steadiness" and "strength" of the government securities market moving forward, and voices concern that there should be no "significant changes in the pattern of rates."
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August 1, 1950 | The Board of Governors Submits a Report at the Request of the Joint Committee on the Economic Report
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August 18, 1950 | FOMC Increases Rates
Following unsuccessful negotiations with the Treasury to raise rates, the Fed decides to act alone. The FOMC agrees to make adjustments to rates on government securities, raising the interest rate on one-year Treasury securities from 1¼ to 1⅜ percent and increasing the discount rate from 1½ to 1¾ percent.
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August 25, 1950 | President Harry Truman Writes to Fed Chairman Thomas McCabe Regarding the Latest Refunding of Government Securities
The August 18 refunding of government securities stirred up some anguish as the Fed announced their terms, which were not in accord with the terms approved by the president for the refunding.
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September 19, 1950 | Assistant Secretary of the Treasury Edward Bartelt Presents to Treasury Secretary Snyder a Review of Treasury-Federal Reserve Relations
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October 11, 1950 | FOMC Executive Committee Gives New York Fed the Authority to Raise the One-Year Treasury Bill Rate to 1 ½ Percent
In this same meeting, the Committee drafts a letter, sent on October 16, to Secretary of the Treasury John Snyder discussing credit policies.
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October 26, 1950 | President Truman Arranges a Meeting Between Secretary Snyder and Chairman McCabe
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October 30, 1950 | FOMC Vows to Hold Rates
In a letter to Secretary Snyder referencing the October 26 meeting, the FOMC maintains the ceiling of 2½ percent on the long-term bond yield and a maximum of 1½ percent on securities maturing within one year. The Committee cautioned that further inflationary or market forces could make it necessary to reconsider these decisions.
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November 13, 1950 | Secretary of the Treasury Snyder Makes His First Written Request for the FOMC's Views on Treasury Financing
After a long period of separation Between the views of the Treasury and the Fed, Snyder asked the opinion of the FOMC on actions to be taken regarding the December refunding.
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November 20, 1950 | Chairman McCabe Delivers the FOMC's Response to Secretary Snyder's Request of November 13
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December 1, 1950 | President Harry Truman and Chairman Thomas McCabe Converse by Telephone and Exchange Letters in Response to an Article in the New York Herald Tribune
President Truman continues to ask the Board to publicly commit to maintaining the pegged rates.
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January 3, 1951 | Fed Chairman Thomas McCabe and FOMC Vice Chairman Allan Sproul Meet with Secretary of the Treasury John Snyder
At this meeting, Sproul and McCabe spoke with Snyder and voiced their concerns about debt management and credit policies. Topics included the interest rates and taxes.
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January 17, 1951 | Fed Chairman Thomas McCabe and Secretary of the Treasury John Snyder Meet with President Harry Truman at the White House
In this meeting, the three discuss concerns over maintains the ceiling of 2 ½ percent on the long-term bond yield.
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January 18, 1951 | Secretary of the Treasury John Snyder Speaks Before a Luncheon Meeting of the New York Board of Trade
Secretary Snyder announces that "the Treasury Department had concluded, after a joint conference with President Truman and Chairman McCabe of the Federal Reserve Board, issues will be financed within the pattern of that [2 ½ percent] rate."
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January 18, 1951 | Board Member James Vardaman's Separate Statement to the New York Times
In his statement, Vardaman makes known (i) his opinion that direct controls alone are not effective in curbing inflation and (ii) his full support of President Truman.
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January 19, 1951 | Fed Chairman McCabe Expresses His Concerns Over the Necessity of Dealing with Inflation Problems in a Memorandum to President Truman
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January 25, 1951 | Board Member Marriner Eccles Appears Before the Joint Committee on the Economic Report, Expressing Concern Over Inflation
In this controversial statement by Eccles, he deemed that the policy of rate pegging made "the entire banking system, through the action of the Federal Reserve System, an engine of inflation."
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January 26, 1951 | President Truman Freezes Prices and Wages
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January 31, 1951 | FOMC Meets with President Harry Truman
The Federal Reserve records reflect that there were no references to disputes with the Treasury and no material was released by the Federal Reserve immediately following the meeting.
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February 1, 1951 | President Truman Sends Chairman McCabe a Letter of Thanks Regarding the Meeting of January 31
The White House releases the letter to the press, effectively announcing the Fed's assurance of full support of the Treasury defense financing program, before Chairman McCabe has an opportunity to ask the President to withdraw it. The Treasury also announces to the press that the Federal Reserve has committed to a stabilization of government securities. The FOMC did not agree to maintain the interest rate.
- Letter from President Truman to Chairman McCabe
- Record of a Call Between Secretary Snyder and Fiscal Assistant Secretary Bartelt Regarding the Outcome of the President's January 31 Meeting
- Letter from Bartlet to Snyder Regarding a Quotation on the DOW Jones Stock Ticker about the Disagreement Between the Federal Reserve and the Treasury
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February 4, 1951 | Governor Eccles Releases to the Press His Personal Notes of the January 31 Meeting with President Truman
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February 5, 1951 | Vardaman Issues a Separate Press Statement Claiming the FOMC's Summary of the Meeting on January 31 Was Not a True Representation of the Meeting
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February 6-8, 1951 | FOMC Meets To Discuss Recent Turns of Events
Tensions are high as confidential meeting details are being leaked to the press and relations with the Treasury are not improving.
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February 7, 1951 | Fed Chairman Thomas McCabe Writes to President Harry Truman in Which He Accepts the Responsibility of the Fed for Inflation and Commits To Work with Secretary of the Treasury John Snyder to Reach a Solution
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February 8, 1951 | Fed Chairman Thomas McCabe and FOMC Vice Chairman Allan Sproul Meet with Secretary of the Treasury John Snyder and Assistant Secretary Martin
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February 9, 1951 | Secretary Snyder Plans To Have Eye Surgery and Will Be Temporarily Unavailable To Discuss the Situation
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February 16, 1951 | Board Member James Vardaman Releases a Letter Received from Senator John Bricker Along with His Response
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February 20-23, 1951 | Series of Meetings Between Representatives of the Treasury and of the Federal Reserve
The current situation of the government securities market is discussed with the goal of exploring how to proceed with securities. "It was clearly understood by all that these were explorations at the technical level and not negotiations."
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February 26, 1951 | President Harry Truman Meets with Thomas McCabe, Charles Wilson, Edward Foley, Charles Murphy, the Council of Economic Advisers, William McChesney Martin, Allan Sproul, and Harry A. McDonald
A discussion occurred regarding the next steps in an anti-inflationary program.
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March 1-2, 1951 | Assistant Secretary of the Treasury Martin and Fiscal Assistant Secretary of the Treasury Bartlet Attend a Meeting of the FOMC and the Two Groups Reach a Compromise
The Record of Policy Actions and Minutes outline the seven-point program discussed.
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March 3, 1951 | FOMC Votes to Carry Out the Agreement Reached with the Treasury on March 1-2
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March 4, 1951 | Joint Announcement by Fed Chairman Thomas McCabe and Secretary of the Treasury John Snyder: The Treasury and the Federal Reserve System Have Reached Full Accord
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March 31, 1951 | Thomas McCabe Resigns as Chairman of the Board of Governors
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April 2, 1951 | William McChesney Martin, Jr. Is Appointed Chairman of the Board of Governors
Treasury-Federal Reserve Accord of 1951. https://fraser.stlouisfed.org/timeline/treasury-fed-accord, accessed on April 28, 2024.
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